What is Reorder point?

The formula

Reorder point = average daily sales × lead time in days + safety stock

• Average daily sales is the number of units sold per day across every channel that draws on the same stock. Work it out from a recent stretch of normal trading, and leave out days when the product was out of stock or on a one-off sale, because both distort the average.
• Lead time is the number of days from placing a purchase order until the stock is ready to sell. Count every stage: the supplier making or packing the goods, transport, any customs clearance, and receiving at your warehouse. For stock sent to a marketplace fulfilment centre, include the wait for an inbound appointment and the days the centre takes to receive and list it.
• Safety stock is the buffer kept for days when sales run faster or the supplier runs late.

The first part, average daily sales × lead time, is the stock you expect to sell while you wait for the new order. Safety stock sits on top of that.

Why it matters

Running out costs more than the sales lost that week. On a marketplace, a listing that goes out of stock can slip in search results and take time to recover after the stock is back. Ordering too early has a cost too: the money is tied up in stock, storage fees run up, and slow-moving units may have to be cleared at a discount.

The reorder point tells you when to order. How much to order is a separate decision, shaped by the supplier's minimum order quantity, price breaks, storage space and cash in hand.

Setting it for each SKU and location

A reorder point is set for each SKU, and for each place the stock is held. A seller who keeps stock in their own warehouse and in marketplace fulfilment centres in several states needs a reorder point for each location, because each one has its own sales rate and its own lead time. Moving stock between your own locations has a lead time of its own, as well as GST paperwork when the locations are under different GSTINs.

Adjust it for the Indian selling calendar

An average from last month does not hold in every month. Demand in many categories rises sharply around the festive season, when the large marketplaces run their biggest sale events, and stock has to reach fulfilment centres before each marketplace's inbound cut-off for the event. For those months, use expected daily sales for the period you are buying for, not the past average.

Lead times also change through the year. Imported goods can take much longer around supplier holidays, port congestion or a customs query. Domestic suppliers slow down around major festivals too. When a supplier's lead time becomes less predictable, raise the safety stock rather than the average.

Review it regularly

Recalculate reorder points at least monthly for fast-moving SKUs, and after any change in price, marketing spend, supplier or channel. A reorder point set once and never revisited is usually either too high for a slowing product or too low for a growing one.